In brief
- The Bank of Ghana’s Monetary Policy Committee (MPC) delivered a 100bps cut to its policy rate, lowering the benchmark interest rate to 29.0% at the January 2024 MPC meeting.
- Ahead of the MPC meeting, we viewed the sharp disinflation and the Treasury’s exclusive reliance on T-bills for its 2024 deficit financing as a compelling case for the monetary authorities to ease the domestic financing conditions. However, we were minded by the potential FX risk from the renewed increase in money market liquidity, which strengthened the counter case to stay on “hold” a while longer.
- The Committee’s updated inflation forecast of 13.0% – 17.0% by end-2024 (IC Insights: 15.1% – 17.1%) appears to have tipped the argument slightly in favour of the doves. Against this backdrop, we view the 100bps cut as a balancing act of containing the upside risk to inflation and easing the financing conditions for the Treasury’s T-bill issuances.
- The unexpected cut in the policy rate triggers a case to raise our forecast end-2024 USDGHS from the current 13.2/USD. However, we would lean against the wind until mid-2024 as we think the first quarter seasonal FX pressures would be absorbed by the anticipated inflows over the course of the year with a potential frontloading in 1H2024.
- There is light at the end of the DDEP tunnel for banks. Encouragingly, the Governor noted that the yet-to-be released financial position of banks in FY2023 suggests the possibility for some affected banks to markedly close their capital shortfalls with the 2023 profits. This places the banking sector firmly ahead of the three-year capital restoration plan, spanning 2023 to 2025. Against this backdrop, we believe a window of opportunity may be opening up for investors to take position in some listed banks with over-priced DDEP impact. However, we remain concerned about the weak asset quality within the banking industry, with sticky NPLs around the 20.0% mark and reflects the high credit risk environment.
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